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Sovereign Spreads and Contagion Risks in Asia

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  • D. Filiz Unsal
  • Carlos Caceres

Abstract

This paper explores how much of the movements in the sovereign spreads of Asian economies over the course of the global financial crisis has reflected shifts in (i) global risk aversion; (ii) country-specific risks, directly from worsening fundamentals, and indirectly from spillovers originating in other sovereigns and the uncertainty surrounding exchange rates. Earlier in the crisis, the increase in market-implied contagion led to higher Asian sovereign bond yield spreads over swaps. But, after the crisis, Asia’s sovereign spreads normalized, despite the debt crisis in the euro area, reflecting a fall in both exchange rate and spillover risks.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/134.

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Length: 25
Date of creation: 01 Jun 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/134

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Keywords: Exchange rates; Fiscal policy; Asia; Bonds; Financial risk; Global Financial Crisis 2008-2009; Sovereign debt; exchange rate; bond; exchange rate risk; bond yields; sovereign bond; government bond; currency risk; government bond yields; financial markets; exchange risk; bond spreads; bond markets; financial sector; government bonds; exchange rate volatility; fixed exchange rate; corporate bonds; government bond markets; currency depreciation; financial institutions; floating exchange rate; sovereign bonds; bond yield; movements in exchange rates; exchange rate level; treasury bonds; exchange rate movements; exchange rate risks; exchange rate pressures; demand for bonds; exchange markets; financial vulnerabilities; exchange rate regime; financial volatility; exchange rate developments; currency risks; sovereign bond markets;

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References

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  1. Miguel A. Segoviano Basurto & Raphael A. Espinoza, 2011. "Probabilities of Default and the Market Price of Risk in a Distressed Economy," IMF Working Papers 11/75, International Monetary Fund.
  2. Schuknecht, Ludger & von Hagen, Jürgen & Wolswijk, Guido, 2009. "Government Bond Risk Premiums in the EU revisited: The Impact of the Financial Crisis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7499, C.E.P.R. Discussion Papers.
  3. Alois Geyer & Stephan Kossmeier & Stefan Pichler, 2004. "Measuring Systematic Risk in EMU Government Yield Spreads," Review of Finance, Springer, Springer, vol. 8(2), pages 171-197.
  4. Iva Petrova & Michael G Papaioannou & Dimitri Bellas, 2010. "Determinants of Emerging Market Sovereign Bond Spreads," IMF Working Papers 10/281, International Monetary Fund.
  5. Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers, Financial Markets Group dp627, Financial Markets Group.
  6. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
  7. Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
  8. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
  9. Alberto Behar, 2009. "Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 069-092, March.
  10. Miguel Segoviano, 2006. "Consistent Information Multivariate Density Optimizing Methodology," FMG Discussion Papers, Financial Markets Group dp557, Financial Markets Group.
  11. Sanjeev Gupta & Amine Mati & Emanuele Baldacci, 2008. "Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets," IMF Working Papers 08/259, International Monetary Fund.
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Cited by:
  1. Heiko Hesse & Ferhan Salman & Christian Schmieder, 2014. "How to Capture Macro-Financial Spillover Effects in Stress Tests?," IMF Working Papers 14/103, International Monetary Fund.
  2. Zlatuse Komarkova & Jitka Lesanovska & Lubos Komarek, 2013. "Analysis of Sovereign Risk Market Indicators: The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 5-24, March.

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